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Gold prices were routed on Monday as part of a broader sell-off in commodities that rattled investors and moved Canadian gold producers closer to a crisis.
Gold had plunged more than four per cent in overnight trading, dropping below US$1,100 an ounce for the first time since early 2010. The key futures contract eventually closed Monday at US$1,106.80, down US$25.10, as the strong U.S. dollar weighed on gold and other commodities.
The drop is a major concern for gold miners, many of which face costs that are underwater at these prices. Analysts have warned that if prices remain below US$1,100 for a prolonged period, more mine closures are inevitable.
“These are very dangerous levels for the gold companies,” said Pawel Rajszel, an analyst at Veritas Investment Research.
Shares prices across the gold mining sector got crushed on Monday, and most of the stocks now trade at multi-year (or multi-decade) lows.
Most of the large gold producers are profitable at US$1,100 gold, but they all have mines that lose money at these prices. And some of them will struggle just to break even. Kinross Gold Corp. expects all-in sustaining costs of US$1,000 to US$1,100 an ounce this year, while Iamgold Corp. expects them to be between US$1,075 and US$1,175 an ounce.
“They’re both in trouble,” Rajszel said.
Investors were most concerned about Barrick Gold Corp. on Monday, driving its stock down a whopping 16 per cent to $9.58. Barrick has the lowest costs of any senior producer, but it is also highly leveraged with about US$13 billion of debt. If gold prices continue to fall, Barrick will find it increasingly difficult to service its debt as its margins and cash flow shrink.
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